Dubai World Expectations

The worlds financial media purred with pleasure at the better than expected terms on offer and international markets had the whole of the following day to participate in an upwards surge in response to the news.How different this was from the froth and near panic that greeted the announcement exactly four months earlier that Dubai World would be seeking a debt payment standstill, with many luridly describing this as tantamount to a wholesale, national default.On the evening of Thursday, 25th March, Dubai World announced the basis of the agreement it had reached with its principal creditors concerning the re-scheduling of its debts. The worlds financial media purred with pleasure at the better than expected terms on offer and international markets had the whole of the following day to participate in an upwards surge in response to the news.

How different this was from the froth and near panic that greeted the announcement exactly four months earlier that Dubai World would be seeking a debt payment standstill, with many luridly describing this as tantamount to a wholesale, national default.

The very differing reactions reflect significantly different approaches to handling the watching media and commentariat most importantly, managing media expectations. Throughout last summer and autumn the media focused on Nakheels $3.5 billion sukuk (Islamic bond), due for payment on 4th December, as the test of Dubais ability to ride out the credit crunch and property value declines across Dubai that this had triggered. Though commentatorsincreasingly doubted Dubai Worlds ability to sustain its debt burden unaided, Dubai allowed the assumption to grow that the Emirates government underwrote all the debts. Even the Ruler himself, HH Sheikh Mohammed bin Rashid al Maktoum, while portraying Dubai's economy as healthy, unwittingly encouraged this government support perception when, in an uncharacteristic outburst of irritation, he told Dubais critics to shut up.

Though problems grew, showing that Nakheel would not meet its 4th December deadline without external support, most likely from Abu Dhabi, no one prepared the media for what was coming: no leaks or no background briefings. Insiders seem to have beening living on the hope that it would somehow turn out all right. By 25th November, on the eve of Eid, with more than a weeks holiday beckoning, Dubai Government made the made the Dubai World "pause for rescheduling" announcement that stunned not only the financial pundits but, for a few days, global markets.

In significant contrast, ahead of the announcement of the new debt proposal at the end of March, carefully judged engagement with the media ensured a strongly positive reaction First, a series of judicious leaks tested possible market reaction with discussion of possible debt "haircuts" and extended debt repayment periods. Then a series of non-attributed briefings ensured that the markets were ready for the announcement when it was made. Finally, the actual announcement was accompanied by the unexpected news of a $9.5 billion injection from the Dubai government and no demand for primacy in debt payments. All this ensured that markets bounced happily, commentators spoke encouragingly of a Dubai recovery, the spectre of the much discussed Abu Dhabi takeover quietly slipped back over the horizon, and credit ratings agencies were reaching for their upgrade lists.

If markets are ultimately driven by herd mentality, the announcements that bookend the Dubai World debt crisis show starkly how vital it remains to manage the prism through which most news is communicated and understood the media. It is a lesson that Dubai has clearly learned but at considerable cost, not only financially but also in the damage to its reputation.